U.S. Court Overturns OpenSea Ex-Exec's NFT Insider Trading Conviction Over Legal Flaw

A U.S. federal appeals court has overturned the conviction of Nathaniel Chastain, a former product manager at OpenSea, who was found guilty of wire fraud and money laundering related to alleged insider trading in non-fungible tokens (NFTs). The 2nd U.S. Circuit Court of Appeals in Manhattan ruled that the jury was given a flawed understanding of fraud, leading to an unjust verdict [1].

Chastain was accused of using non-public information about which NFT collections would be promoted on OpenSea’s homepage to purchase dozens of NFTs and later resell them at significantly higher prices. The trades occurred while he was employed as a product lead at the company. He was arrested in June 2022, convicted in May 2023, and sentenced to three months in prison and three years of supervised release by August 2023 [1].

The appeals court emphasized that the original trial court allowed jurors to interpret fraud too broadly, punishing Chastain for unethical behavior rather than for the misuse of a tangible property right. The judges ruled that the conviction rested on an incorrect legal instruction, stating that fraud must involve the misuse of a property interest, not merely unprofessional conduct [1].

Chastain’s defense further highlighted the actions of OpenSea co-founder Devin Finzer, suggesting that Finzer also used internal information for personal gain, such as purchasing MATIC tokens before OpenSea announced its integration with the Polygon blockchain [1]. While the court did not determine whether Finzer violated any rules, it acknowledged the claim as part of the broader argument that OpenSea may not have consistently enforced its internal policies or considered such behavior abnormal at the time [1].

The ruling leaves open the possibility of a retrial, though no immediate decision has been made by prosecutors. The case has now become a significant legal precedent, particularly in the evolving regulatory landscape surrounding crypto and NFTs. It raises important questions about how traditional legal frameworks apply to digital assets and the boundaries of insider trading in decentralized and fast-moving platforms like OpenSea [1].

Source: [1] U.S. court overturns NFT insider trading conviction of former OpenSea exec https://coinmarketcap.com/community/articles/688b8f71bf48f50f14cff672/